Google

Google Dethroned?

There's a truism in Silicon Valley that Peter Thiel describes in my book: No publicly-traded Internet company stays on top for more than four years. We saw it with Netscape, Yahoo, eBay, and I think we started seeing the beginnings of it with Google at the end of 2008. The company reports earnings later today, and as Paul Kedrosky and I discussed on TechTicker, analysts have been slashing growth estimates, although it's still in double-digits, and clearly outperforming other Web names.

But, truth be told, in this Darwinian Web cycle, the financial results are a lagging indicator when the king-du-jour of the Internet gets dethroned. If you look closely, we're already seeing loads of signals that Google is losing its grip on Web supremacy.

  • The Inauguration: I flicked to this in my daily Yahoo "ValleyBuzz" post yesterday, but it bears noting again. Look closely at the Web stats on Inauguration day. While Obama was taking the oath of office and delivering his speech, Google's stats shows a decline in search activity. Meanwhile, Twitter and Facebook usage soared. This speaks volumes for two reasons. One: It proves why Twitter and Facebook are ultimately more powerful sites, and paradoxically it's the same reason they are so tricky to monetize. They aren't about "transaction" they're about "connection." People went to Google to find specific information about the President-Elect and the ceremony. People go to Twitter and Facebook to share the experience with one another. That means, Twitter and Facebook are delighting users more than Google, because they are keyed into natural human needs and emotions that trigger far greater and more addictive endorphin rushes than just finding a piece of information. But far more telling and troubling was the explanation on Google's blog about why their numbers went down: Because people were obviously glued to the TV. Maybe. But they were also on other sites. Google no longer gets where the Web and its audience is going.
  • Hulu/YouTube: Ok, we all thought Hulu was at utter joke when the networks first talked about it. But it's amazing, and its traffic hasn't dipped after the election as many thought it would. Sure YouTube is bigger in volume. But so many of the videos are user generated content in which I don't have any interest. They're like the thousand of listings for "Buy It Now!" socks on eBay. But Hulu isn't just better because it can have professional content: It's the technology. The last three times I've looked for a video clip, I've spent half an hour scouring Google and YouTube only to get a flood of inaccurate results. Each time, I've tried Hulu as a last result, and found the clips within minutes. Hulu has better fields, parameters and user interface for searching videos than Google, which still appears to search for video the way it would for text. Hulu won its own game (content) and shockingly in video beat Google at its own game (search).

Peter says in the book that there are two reasons for this four year curse. The first is that the farther a company gets from its big IPO moment, the more rapidly it loses its smartest employees, which is basically the only asset that matters for a Web company. See this TechCrunch post on why people leave Google, but really it's the same story with any company that's on top for this long. Its heyday has passed in terms of the well-understood stock option game of Silicon Valley.

The thread on that post, leads me to point two: Hubris. In the case of AOL, Yahoo, eBay and Google, each company became deluded they could do no wrong, they would always grow, and were smart enough to continue to lead the market. But not a single one has successfully anticipated the next big thing online. Amazon is the only Web company to come close, even if it's still mainly known as a bookseller. The examples above-- and many more out there-- point to the same hubris now strangling talent and innovation at Google. The assumption that if people weren't searching, they were watching TV on Inauguration day. The assumption its video search and technology would naturally be better than that of a media joint venture. And the haughty hiring process.

This is not to say Google won't continue to dominate what it does well, the way Yahoo does as a mass content-aggregation portal. This is not to say Google doesn't still have an amazing business model, just like eBay still has an amazing business model. But its golden child, do-no-wrong reign is ending. Reporters have been saying for four years that with more than 90% of its revenues coming from search, Google is a one-trick-pony; it's just been one phenomenal trick. And despite the billions spent on acquisitions and hundreds of beta projects thrown at the wall, the reality is Google hasn't been able to find a solid second trick.

Now that it's 2009, Google may be a bit past the four year mark of Thiel's curse, but not for long.

Comments

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Great post. Like any other fickle Web consumer, I've fallen in and out of love with all the companies you listed.

In middle school, I begged my mom for an AOL account. In high school, I was a devoted fan of Ask Jeeves (shudder) and Web Crawler.

In college, I delved into MySpace, Friendster and Facebook. And in my professional life, I finally found my life partner: Twitter. Facebook and Twitter are the most addictive programs because they offer the chat/share/blog functions without costing an arm and a leg. They're easy, accessible and moreover, FUN to use.

I remember when people wondered if the Internet would cause the decay of person-to-person interaction. I think Twitter and Facebook have only helped. I'm linked to people who share my interests; I find freelance journalism opportunities; I share my blog posts with people who typically would never find me on Google. For people who love to read, share and write, these are great tools to spread the word and have a lot of fun.

(For example: I found this blog through Twitter, probably because I was looking for BW people. I interned there in 2004.)

While you make valid arguments, I just can not disagree more. Google is part of a much broader "mega-trend"...Microsoft (if you consider their megatrend being the PC) road it's success/stock success much much more then 4 years. Google is no differant other then their megatrend is the "connected/online" phenomena. You need to keepthings in perspective.

1) Google's one-trick revenue stream (as you allude to) is THE dominant player in a market (online ad spend) that has minumal penetration re traditional advertising thus far (online ad spend still less then 15%).

2) When Google does finally figure how to monetize another property (ie YouTube or Android) it will be like flicking a switch on and doubling revenues almost overnight)

Keep it in perspective...

www.twitter.com/A_F

Hey Sarah, could you drop me an email - mick@seekingalpha.com

re. carrying your blog posts on SA and promoting your book.
Tks

Andy:

THANKS for the comment. we should make a bet. microsoft is a totally different case, because it's software and there's lock in. ditto, say, oracle. that's why i say it's a rule of the web.

google boosters have been making point #2 for years now. IMHO, that's the blind faith that bids these companies up in the markets so that they're only priced to fall.

per point #1 search has only been a recognized revenue stream a few years. you think another one can't appear just as quick??

in tech, past performance is just a clue of future results, not a guarantee.

i admire a lot about the company, i've just seen this movie too many times to agree with you!

So you are inferring that Google is not software (alludes to them being hardware)? Even though they are a "service", they are software. BTW you need know that though I disagree I am not one of those Googlelonians that follow or invest with blind faith. I think my analogy of them to Microsoft's run is SPOT on though. We have a bet...Lunch?

andy:

ok, we can say anyone in tech is a software company with that logic! let's say "old gen software" for clarity bc google shares *some* challenges with SAAS players too, as i've written abt for BW.

YES: bet is on. lunch this time next year. what parameters? stock price? earnings growth? second material revenue stream? i'll take any!

Do you think this is creative destruction?

Do you think this is creative destruction?

Awesome post - I love the insight about the inaguration and how the traffic levels of the "connecting" tools spiked while the "researching" tools dipped. I think that this is only bound to contine - and accelerate - as adoption of social media increases.

But... I think that the four-year cycle looms in the distance for Twitter and Facebook. Because once "everyone" is using social media and "everyone" is connected, it will be so much noise that everyone will be ready to move on to the next thing (whatever that might be).

Anyway, really good insight here, thanks.

melissa: 100% agree it looms for FB and TW. actually bigger problems loom because they have to actually get to solid business models first to get near going public and face this. in other words, this "problem" is one all web companies would *like* to face one day. we frequently lose perspective on what companies like yahoo, ebay and other "has beens" did accomplish and honestly, still do.

Sarah,

I share your enthusiasm about Hulu, except it's not available to anyone outside the U.S.... YouTube is.

When I moved to Canada, I found out that as far as most US companies (though not Google!) were concerned, I might as well have moved to the moon.

Almost nobody ships to Canada, Hulu doesn't want to stream anything here (there's an email form asking me to enter my email to get notified), countless companies obstinately require a 5-digit "zipcode" (even for non-U.S. orders!), this list goes on and on. The rest of the world seems to be a rounding-off error in most business plans.

Google, on the other hand, has been doing a reasonable job on the international scene and its products are generally usable for non-US users. Its national editions of search engines are usable in most countries. The local editions of its news service (look at the bottom of news.google.com) are excellent news aggregators for quite a few countries. Switching to another area, its AdSense network allows to monetize non-US traffic (something other networks simply refuse to do).

In general, Google works and is relevant for the rest of the world.

P.S. I realize there are issues beyond technology that prevent non-US media distribution. Still, the result is the same...

P.P.S. For a while Facebook exhibited the same US-centric mentality, but they finally woke up, did the translation/localization work and are now catching on like crazy in places like France. It took several years and countless activist groups, though.

I interviewed there once and didnt like the interview process much. The people I talked to were great people. But the PROCESS itself sucks because it's long and drawn out and you dont know what the heck is going on. Anyways... I didnt really like it. They take forever to make a decision. Complete opposite of performing a Google Search.

@slavito: EXCELLENT point about hulu being US only. i forget about that, and it is a huge, huge caveat and a huge shame given how great the site is. but it's the only element of flawed old-media thinking i can see on the site which comparatively is nothing short of amazing for old media. i will learn your frustration the hard way as i have a lot of international travel planned this year! :(

@scott: it took me six months to get a job at businessweek back in 2003-2004!! i feel your pain ;)

'per point #1 search has only been a recognized revenue stream a few years. you think another one can't appear just as quick??'

@sarah: No is the short answer to that. People have tried and failed (Cuil for example). Googles search algorithm is second to none and isn't likely to be replaced any time soon.

Plus searching is one of the core functions of the Internet.

Both Twitter and Hulu are small fry, Hulu being US only is tiny in comparison to other sites. Twitter is becoming more mainstream, especially here in the UK but its still an infant.

olly: your point on cuil doesn't make any sense in this context. i'm not suggesting facebook or twitter or anyone else beats google at a search algorithm- i'm saying google hasn't moved beyond it. that will be a serious issue for wall street, and hence a serious issue for google. no one has replaced yahoo in traffic, but missing search caused it the same problems. hence the similarities with other web names.

you really think NO web site comes up with another business model the size of search? that's another bet i'll take. me, and i'd guess, every single resident in silicon valley. i mean, that's sort of the point to entrepreneurship!

Great insight, even if it is just pure speculation.

I believe that one of the main problems with Google, and indeed many other software companies, is that at some point they forget that what they are doing is creating "ideas", not simply making money; it's the ideas that bring in the money. The problem with Google is that lately is seems to be in the Business of killing ideas (Jaiku is a good example). Perhaps Eric S. does not understand that he is running a software company, not just a "business"...

If they do fail, please tell their 1.5 million advertisers to email me first.

PS: I don't use gmail, so please don't send any 1 gig attachments.

You're dancing around the central issue. Yahoo and e-bay declined not because of some magic four-year cycle. They declined because the screwed over their customers. When Google or any other company does that, it too will decline. Four years has nothing to do with it.

If what you say is true, Craig's List should have declined by now also. It has not. Why? Because Craig takes care of customers.

Amazon will probably be the next to stumble because Jeff has delusions of grandeure and forgets that he must serve, not exploit.

Take care of customers, and they will take care of you. Forget them, they forget you.


I agree with PJ Brunet wholly; and have seen Go Ogle fail in several cases of "customer" service. I agree with you, too, about hubris.

I've read the predictions of a Go Ogle backlash beginning in '09. I've seen various postings of that tenor.

I've signed up for Twitter and replaced my discontinued Notebook with Evernote...

I agree with peter (above) wholly; and have seen Go Ogle fail in several cases of "customer" service. I agree with you, too, about hubris.

I've read the predictions of a Go Ogle backlash beginning in '09. I've seen various postings of that tenor.

I've signed up for Twitter and replaced my discontinued Notebook with Evernote...

You put that so well that it's hard to disagree; yet I don't think Google's fall from grace will be as speedy as some may imagine. When the likes of AOL went to the dogs, market conditions were quite different to how they are today. Despite the massive upsurge in social networking, there will always be a need for search engines. If Google continue to do search better than anyone else then they'll survive; despite any shrinkage of their user base.

As for staying at the top and their heyday coming to a close; well maybe. - Unless they can evolve with the times.

In the Darwinian Web - cycle it's those who evolve along with the changing online environment who survive. if Googlr can get fresh blood onboard and pull it off then they'll make it. If not they'll be remembered in the fossil record.

"With more than 90% of its revenues coming from search, Google is a one-trick-pony"

Journalism fail.

Check your facts. The latest earnings report shows nearly 33% of their income from network and licensing.

Hi Sarah,

Great article! I share your thoughts!

What I'm most bothered by with Google is everything Google set out to be in the early years, which was a pure research-based search, is everything that it is not today. Do you remember all of those advertising-heavy search engines which turned up ads for those who paid to be found? Well, Google has turned into that. All the companies that pay the most to be found get found.

Another major question I have had to do with user-generated content and search engine clutter. It just seems that everybody has a blog and everybody is producing content - even really bad content.

How does someone who is searching continue to get the info they are really looking for -- to find the best content?

It seems that marketers and SEO people will continue to clog the search engines with selling stuff. Obviously, there's gotta be a better way to search.

Google has to address customer service. It's getting bad over there. No call backs, no humans to talk to and I was managing a $600,000 spend.

Internet companies need to remember that their customers are not money servers.

Is this post a joke? Seems like a cry for more attention. Don't you already get enough?

Your comment about traffic falling during the inaguration is laughable. Facebook did a deal with CNN to let people watch the stream and post while doing so. Of course their traffic was up. Heavy twitter users are obsessed with posting their opinions on important events as they unfold. Of course their traffic was up.

Google isn't going anywhere. Until someone else invents another, more efficient ad platform with an incredibly large audience that let's you track the return on your marketing dollars down to the penny, Google will be fine. And I'm guessing that they're going to be fine for a long time.

peter: craigslist isn't a public company. READ THE POST! ;) that's a pretty crucial point of the four year problem.

@foobar: um, you are wrong and it's not a journalism fail. the bulk of google's life as a public company it's well, well over 90%. it's still the vast majority. point holds.

@kevin: check your facts. it wasn't just facebook and traffic decline was granted on google's blog. hence, not laughable. but nice try. no one said google is going away so next time try rebutting something a blogger says before calling a post "a joke."

Did you read the article? Sarah is not arguing that Google is going anywhere she is merely stating that Google is no longer going to be the darling of wall street.

viva kevin2! I compliment your literacy sir! ;)

Excellent article Sarah. I agree with the point that google missed the boat on the social web revolution.
Google is likely to maintain its massive and growing revenue stream from search unless somebody can figure out a better way to reach those markets (seems unlikely) or can beat them at search (also seems unlikely).
The real problem for the rest of silicon valley is to find a revenue stream that's not predicated on "eyeball"-style ads. These will never really make twitter (or especially facebook) terrifically profitable, since they are such expensive services to run compared to simpler hosted media like Yahoo. Remains to be seen whether somebody can come up with it.

Sarah is right. Google just doesn't get the importance of the social web and the potential threat from social search. Those little voting buttons they are trying out on their search results are laughable.

Algorithm based search will still be important in the future but nowhere near as dominant as it is now. The fact that nobody has completely worked out social search right now does not mean nobody ever will.

Completely agree with Kevin. Twitter was heavily used due to the fact that a great many people were there watching the Inauguration in DC. Those people in the crowd were twittering away about how they were there and how amazing it was to be part of something like that. As for Facebook, Kevin has already mentioned that CNN and Facebook had a deal where you could stream the feed of the inauguration and have Facebook up in the same window so you could post comments. The facebook page had over 2million subscribers I think.

While I understand your opinion about the 4 year cycle, I think you need to better understand that Google is leveraging their position as THE search engine to become THE advertising platform. They are able to target, with astonishing accuracy, a marketers target audience. Which other platform can produce the same results with such little cost to the advertiser?

The current economic crisis is the reason their profits are down obviously. The reason their revenues are down is because businesses are spending less on advertising to try and cut back and stay afloat. This won't affect just Google but every advertising platform out there including traditional press and TV.

If you want to look at the demise of a giant, then why not look at newspapers and how the internet is pushing them out of business because it is so easy to find up to the minute news on any topic you can name through traditional searches and feeds.

It's a bit bleeding obvious that Google activity was down whilst the inauguration was on. Activity also drops when World Cup football's on and I bet it drops during the Superbowl too.

Yes, but I don't see Google as an internet or technology stock anymore. I wrote yesterday on my site that if you compare Google and Microsoft, their earnings were drastically different because Google has turned in to more of media company. Eric Schmidt is a brilliant CEO. I would bet on them for the long run.

it seems to have become quite fashionable to knock google as of late and i'll be honest, it's becoming quite boring.

Reading this post it felt that oranges where being compared to apples, well I want to say vegetables. It might be my own ignorance of web-excitedness but I didn't find myself in agreement with the Google vs. Twitter comparison and suggestion based on the Inaug. event that Google therefore is being dethroned.
Why would we actually apply search to a LIVE event, one that had 1.5M attending in person? - instead communicate.
A relevant and telling related rightly to communication, is to compare stats on mobile voice calls vs. SMS vs. mobile twitter, etc. which the event is a demonstration of.

That people are using the Internet for more than search of existing information and are now using it real-time is a comment to be made, in the live settings it drives mobile data consumption.

These ideas in your post I fully agree with:
- We don't need Google for every aspect of our lives.
- Google doesn't have a monopoly on innovation.
- The web and users are slippery to hold onto!

great post! i agree that hulu is amazing, they just need to expand it outside USA for more people to enjoy!

Why can't I see all the comments on this post without adding another comment?

You're posts, like your book, continue to be important and relevant sources of information for me. As a recent enthusiast to the segment, I appreciate your expertise, the breadth of your knowledge, and the timeliness of your reporting.
While I am new to this industry, I am an experienced business person and a long time observer of economic and commercial trends. As I read your article trumpeting the fall of Google, I would offer the following cautions. First, "truisms" are relevant until they are not. Of course there will come a time when a publicly traded internet company "stays on top" for more than four years. But let us be careful about how we measure "on top". If Google has been "dethroned", who exactly is it that has dethroned them? Of course Twitter and FaceBook use skyrocketed during the inauguration, as people communicated their thoughts and marveled as history was made. That's what Twiter and FaceBook are for. I'm not sure that indicates a supremacy of any sort over Google: different product, different use.
As for the whole monetization issue, I think it's getting stale. You create a product, and either the marketplace determines that the product has value, or it doesn't. I don't know how many people are using Twitter at the moment. I know there are a lot, and that many of them are passionate about it. Some might even say that they couldn't live without it. So if Twitter (et al) is so great, so indispensable, so valuable, then why the heck can't they charge $5 a month for it? So far, it's just a really cool product, an incredibly powerful technology, that they are giving away. The definition of success comes into play here. Designing and building the platform, in and of itself, is a success. Attracting so many users is also a measure of success. I do not mean to discount those achievements in any way. But of course none of that is what constitutes a "going concern". I know it's not likely to happen anytime soon, but how do you think all of the loyal "Twitterati" would react if Twitter decided to become fee based tomorrow?
Thanks again for all of your great work... I'm already looking forward to your next book!

So, because for one single day Google traffic is down and Twitter/Facebook traffic is up, that implies a wider trend of Google being dethroned? Good analysis! ;)

Um...

I'm not exactly sure what you're trying to say in this post but Google's growth is definitely not slowing, in fact, it's accelerating:

http://www.techcrunch.com/2009/01/28/google-gobbled-up-90-percent-of-all-us-search-growth-in-2008/

if that's what you took from this post, you've got some reading comprehension issues, my friend. for one thing, i didn't even say their traffic was down that day! ;)

I'm sorry but comparing Google's traffic to that of Twitter and Facebook in order to make a point about Google's dominance is like comparing apples to Volkswagens.

Google is in a horizontal market. Twitter and Facebook are in vertical markets.

This post is a real stretch.

Stick to drooling over pictures of The Dear Leader without his shirt on and leave the tech writing to people who actually know what they are talking about.

guys: let me explain since you're not actually reading the post. the issue is innovation and growth. google is a one-product company. people VERBATIM said the same about yahoo and ebay and aol at one time and guess what? those investors lost a lot of money. in fact- yahoo STILL has greater traffic. so by your logic YAHOO is the king of the web. they'll be thrilled to hear that! ;)

Google's growth must be declining because the crackpot 4 year theory requires it to be so.
The fact the theory doesn't quite fit the data shouldn't stop you declaring Google is no longer king.

Post this crap again in a year to see if Google has been dethroned, then modify the data to fit the theory.

… pfft … analysts !

wow, neo. you're a pretty big fan to think i know nothing about tech. thanks for all the page views! isn't amazing i've pulled the wool over so many people's eyes for the ten years i've been a tech reporter? you'd think i'd get found out at some point.

Tech reporter? I have 4 words for you:

Mark Zuckerberg SXSW "interview"

Bwaaaaaaaaaaaahahahahahaaahahahahaaaa

i know, that really hurt my career didn't it? oh wait, i make more money and have more platforms now. nice try! ;)

Girl, you are trippin'!

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